My favorite fast-food franchise is Sonic. I don't care for the drive-in but I do love the unique style of food. Sonic is one of those places that when I do not live in an area served by them, and I happen to go on vacation, I MUST eat there. When I talked to other young people in the 16-25 demographic, they also love to eat Sonic on vacation, and one friend (18 years old) actually made a 2 hour road trip to a Sonic one night.
I feel that Sonic has a lot of room to grow in the US due to the uniqueness of their food. I pulled up a bigcharts outline of historical data since inception 18 years ago versus McDonalds, and Sonic experienced a huge boom of about 2000% above inception price during the mid 2000s. Since then it has severely declined, likely due to a poor economy and reduced number of franchisee investors.
I have not yet reviewed their annual reports, as I am fairly new to that and it will take me a few hours. I would like to list my rationale for why this may be a good company to invest in, depending on the results of my accounting review.
1) The big players in fast food franchises (Burger King, Wendys, Taco Bell) are very expensive and McDonalds I believe is not taking new franchisee members unless you have the right contacts. If Sonic is a smaller player, it's likely they are cheaper to buy into. This is a topic for research to compare buyin costs and contract restrictions for Sonic versus other names.
2) The big players in fast food are highly saturated with little room to grow. Sonic has very low penetration in the US and could potentially expand with the right franchisee owners and marketing.
3) The stock has a low volume and appear to be extremely volatile - suggesting that tracking it over a 6 month period might allow a savvy investor to buy in at a relative low point and hold it for a few years.
4) Sonic pays no dividends so it is suitable for taxable investing being more efficient than a high yielding stock. Additionally, since it is a risky investment, being in taxable allows one to capture tax savings in the greater than likely event of a loss.
I think this type of thread with the new relaxed rules on individual stock discussion could be very useful if we keep them filled with good information and few tripleB jokes.
tripleB said: I feel that Sonic has a lot of room to grow in the US due to the uniqueness of their food. Since this is the central point of your post, please explain it. Perhaps it's obvious to those who have been there, but I drive by a few every day, and always figured it was yet another place to buy hamburgers and hotdogs.
marketingmike said: Best of breed in fast food is probably MCD, but they yield 3.5% or so. Not sure why you're afraid of dividends, btw. It's not that he's afraid, he's simply educated.
xchange55
Member
posted: Oct. 20, 2009 @ 10:20p
You knock dividend paying stocks and then recommend a company like SONC? Do you know companies that pay dividends are typically the most profitable companies that are so confident in their cash flows they afford to make the payouts? SONC is a risky stock at best. I don't konw why you are so focused on taxes. But did you ever stop to consider if you purchased shares of XYZ and made a profit selling, you would need to pay something called capital gains taxes? Any form of income is taxable. SONC reported their Q4 earnings today; they are down year over year. Regardless of the state of the economy that is a huge minus for what you are hoping is a "growth" stock.
2 - The market penetration issue is a little questionable. They are not unique; all the competitors you named can more or less be considered substitutes and are everywhere. Usually you would say minimal pentration for products that aren't yet widely available or widely in use. A good example would be car naviagation GPS. Just think 3 years ago how few people had them. Aftr a few holiday seasons now it seems everyone has one. That was an untapped market.
3 - This statement has no value. Low volume and volatility do not make this stock a better/worse investment.
4 - So this is a positive? No dividend so I'm not getting additional income. Risky stock so I can write off more capital losses? The principal amount of your investment will in most likelihood be higher than the tax benefit you receive.
CMG is very risky also, but a much better choice than SONC. Maybe even a PNRA. The product differentiation helps (penetration issue). Even WEN is having trouble competing with MCD.
SONC just opened a location near me in the northeast. I'm curous to see how it does in the winter months.
xchange55
Member
posted: Oct. 20, 2009 @ 10:31p
Oh BTW, I own MCD shares. Every quarter their company pays me some cash, but I don't actually do any work for them, I just collect the money. They call it a dividend. The amount of cash they are paying also keeps increasing every year. In DEC they will pay me 10% more than what they paid me in JUN and SEP.
TheMeliorist said: tripleB said: I feel that Sonic has a lot of room to grow in the US due to the uniqueness of their food. Since this is the central point of your post, please explain it. Perhaps it's obvious to those who have been there, but I drive by a few every day, and always figured it was yet another place to buy hamburgers and hotdogs.
I probably won't provide a whole lot of insight as to the stock...but I live in Oklahoma (where Sonic originated), and of course Sonic is everywhere in the city and virtually every little town has a Sonic. So basically I'm used to seeing Sonic everywhere too.
However, Sonic is VERY popular when the company enters new markets. When I lived in Nebraska a few years ago, Sonic opened its first locations in the area and they were packed around the clock; I've heard it's the same thing in other areas. Even though the novelty might slightly wear off, I would imagine that Sonic locations would be able to still remain profitable in these new markets, especially when there's not a lot of locations in an area. I don't know how exactly their franchise agreements work...if a location does very well, how much of the reward does Sonic reap and how much does the franchisee reap?
And there are a number of markets where Sonic has no locations; Washington, DC area off the top of my head (the closest location is in Fredericksburg, about 1.5-2 hrs away!) I'm not sure as to whether they are planning to enter these areas or why they wouldn't...I would imagine that they would do very well, since it seems like they do national TV advertising and have decent brand recognition. (At least I recall seeing Sonic ads on TV in Northern Virginia.)
scottxmso said: I would imagine that they would do very well, since it seems like they do national TV advertising and have decent brand recognition. When I hear "Sonic", even on their national TV ads, I think of the hedgehog rather than burgers.
Ryan431101111
Senior Member
posted: Oct. 20, 2009 @ 11:23p
I live in an area where Sonic has come to in the last year. Before then the closest one was more then 2 hours away, which my friends and I have considered many times. However, when the first one open near me, they were packed, but now noone goes there. They built one closer to me after that, it was packed, at first. I think it is too much of a novelty for people around me because they kept airing commercials for it. Now that it is close, people dont go anymore, and there food is not all that great compared to Wendys and MCD.
To answer the question about why I liked Sonic so much - it's their breakfast which they serve all day. They serve lunch and breakfast all day. I never ate their lunch. But their breakfast is an egg sandwich on buttered toast. So think about the worst part of McDonalds and Burger Kings breakfast - the bread part. The biscuits or mcmuffin bread is sometimes too hard or just not tasty. Sonics is real bread they toast and put butter on. Super unhealthy but soooo tasty!
It also feels like real food. McDonalds feels like they unfreeze it and sell it to you - which Im pretty sure thats how it works. Sonics feels like they actually cook the food and prepare it like a diner would. Maybe they dont, but I get the impression based on the way the food tastes that it does.
I think only McDonald's food is worse than Sonics, although I like their drinks. Honestly once you get past the uniqueness of the drive in concept(the food is not that unique), there is not too much of a reason to go back. I have noticed the same thing as Ryan in regards to Sonic openings. Packed at first, but pretty quickly business slows down.
I think this thread is funny...I live in a small town outside of Tulsa, and all we have on our side of town is a Sonic. Don't get me wrong, I'm glad we have it or we'd have nothing...but it's funny to think of people driving two hours just to eat at one. My husband hates their hamburgers. Their breakfast burritos are pretty good...and they have the best soft drinks...you can have any kind of drink you want: cherry coke, peach sprite, melon ocean water, you name it! They have really good sweet tea, as well as peach and raspberry teas. Their frito chili pie wraps are good too. Needless to say, not the healthiest place to be eating...oh, and we have an Arby's...woo hoo.
Oh, and they have happy hour every day, even weekends, which offers 1/2 price drinks and slushes.
all Sonic needs to do is get City blessing to host a car show /drive in for different car types 3 nights a week and they will be packed.
one night muscle cars, one night import cars , one night trucks etc. Many cities wont permit such show and shines due to security concerns
skrangeo
Member
posted: Oct. 21, 2009 @ 7:25a
whataburger >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> sonic
taurean
Senior Member
posted: Oct. 21, 2009 @ 7:45a
The first Sonic in Michigan opened a year or two ago and for the first few months it had hours long lines of cars backed up throughout an adjoining meijer parking lot all hours of the day and night. They had to keep multiple freezer trailers on premises to keep up with demand. As someone who had been known to drive 3-4 hrs to the nearest locations in Indiana or Ohio, I was very pleased to see them come. But without the rarity factor, I haven't been to Sonic in months... just not the same when it's available 15 minutes away.
jcole21
Senior Member
posted: Oct. 21, 2009 @ 8:12a
I'm not a sonic fan - the ones in my area seem to do a pretty low volume of business and are known for their slow service, a killer (IMO) for lunch and dinner crowds. They'll never be one of the big players unless they become more efficient.
That's my fundamental analysis - I have no idea of the technicals - perhaps someone could post some industry numbers/ratios of the big guys and contrast them to Sonic.
ETA: I think we've got three in a 'metro' with approximately 500k in the midwest, all within the last 5 years or so roughly. The one that I drive by on the reg is pretty slow (both operationally and traffic wise - the location isn't great though).
danceteammom said: I think this thread is funny...I live in a small town outside of Tulsa, and all we have on our side of town is a Sonic. Don't get me wrong, I'm glad we have it or we'd have nothing...but it's funny to think of people driving two hours just to eat at one. My husband hates their hamburgers. Their breakfast burritos are pretty good...and they have the best soft drinks...you can have any kind of drink you want: cherry coke, peach sprite, melon ocean water, you name it! They have really good sweet tea, as well as peach and raspberry teas. Their frito chili pie wraps are good too. Needless to say, not the healthiest place to be eating...oh, and we have an Arby's...woo hoo.
Oh, and they have happy hour every day, even weekends, which offers 1/2 price drinks and slushes.
+1 from a fellow Tulsan.
tazzy531
Senior Member - 4K
posted: Oct. 21, 2009 @ 8:40a
xchange55 said: You knock dividend paying stocks and then recommend a company like SONC? Do you know companies that pay dividends are typically the most profitable companies that are so confident in their cash flows they afford to make the payouts? SONC is a risky stock at best. I don't konw why you are so focused on taxes. But did you ever stop to consider if you purchased shares of XYZ and made a profit selling, you would need to pay something called capital gains taxes? Any form of income is taxable.
Not to speak for TripleB (and I do feel dirty for defending him). I think you are misinterpreting TripleB's point on dividends. Of course you pay capital gains on investment gains; that is without doubt. What he's highlighting is that with dividends, you are effectively paying taxes twice: corporate income tax and personal income tax.
Also, typically, dividend stock companies may be confident in their cash flow but also recognize that their growth is limited. Otherwise, they would reinvest the gains back into the company for even more growth. Tech companies traditionally don't give out dividends for this reason. This is why it was such a big deal when MSFT decided to give out dividends.
Sonic does have a differentiated menu. Probably a bit too broad to supply most efficiently.
I like the stuff.
Obama4Prez
Senior Member
posted: Oct. 21, 2009 @ 9:56a
n/m
slomo007
Senior Member
posted: Oct. 21, 2009 @ 9:59a
danceteammom said: I think this thread is funny...I live in a small town outside of Tulsa, and all we have on our side of town is a Sonic. Don't get me wrong, I'm glad we have it or we'd have nothing...but it's funny to think of people driving two hours just to eat at one. My husband hates their hamburgers. Their breakfast burritos are pretty good...and they have the best soft drinks...you can have any kind of drink you want: cherry coke, peach sprite, melon ocean water, you name it! They have really good sweet tea, as well as peach and raspberry teas. Their frito chili pie wraps are good too. Needless to say, not the healthiest place to be eating...oh, and we have an Arby's...woo hoo.
Oh, and they have happy hour every day, even weekends, which offers 1/2 price drinks and slushes.
Bingo, this is the secret to Sonic's success. Insanse profit margins on drinks, and they have the best drinks anywhere. They will be successful for a long time, or at least until a competitor comes along and focuses on their drink menu. I agree that Sonic's food is marginal at best, but I go there frequently solely to get a $2 large soft drink (plus tip). Stupid financially, so red away.
mtl325
Senior Member
posted: Oct. 21, 2009 @ 10:12a
investing 3b style. Throw out an exuberant buy, have the stock crater on missed earnings the next day. I hope you didn't buy any yesterday 3b cause now you're down 5.5%.
In fairness, the equity seems fairly valued - but after that print, I don't know how much faith I'd have in management.
In Oklahoma and surrounding states, Sonic is the most whored out franchise there is. The first franchise any small town gets is Sonic. I like it alright- they have decent food, great drinks, but the service generally sucks. I don't know why they started putting drive-thrus in the new ones, it takes forever to get anything so you might as well park. I just want them to bring back the window trays and the server chicks on roller skates.
slomo007, Don't tip your Sonic server. They're not doing anything special. They don't get your food out any quicker or make it taste any better. It's not your fault they have to bring it to you outside. Would you tip a worker at McDonalds or Wendy's?
I think Sonic just falls under another "wanting something that you can't have" phenomenon. I used to live in a market that had both Sonic and Jack in the Box, and I've since moved away to where there are no JITBs and Sonics are just starting to pop-up. I have no crazed desire to wait in line for either of the food at these places, but people around here get giddy when you mention them. It's something new so people are excited to explore the food and the concept, but once the novelty wears off it's just another food joint.
Krispy Kreme was the "crack" version of this, in that they made it too accessible too quickly and pretty soon all of their customers ODed
xchange55
Member
posted: Oct. 21, 2009 @ 10:40a
SONC is down 7% in afternoon trading after reporting disappointing Q4 results last night. But just think, if you sold now for a loss and not a profit, you would not pay any taxes! In fact you would get a write off benefit. I guess that's something to cheer about, 3b style.
Just because you like a product or service, does not mean it's a good investment.
tripleB said: ... and one friend (18 years old) actually made a 2 hour road trip to a Sonic one night.
Translation: kevinkevinkevin watched Harold & Kumar Go to White Castle.
ledwards
Member
posted: Oct. 21, 2009 @ 11:02a
tripleB said: ...I have not yet reviewed their annual reports, as I am fairly new to that and it will take me a few hours.
You're joking right? You're making a stock pick recommendation and you haven't even done an analysis yet?
slomo007
Senior Member
posted: Oct. 21, 2009 @ 11:13a
ratdaddy said: slomo007, Don't tip your Sonic server. They're not doing anything special. They don't get your food out any quicker or make it taste any better. It's not your fault they have to bring it to you outside. Would you tip a worker at McDonalds or Wendy's?
The McD's or Wendy's worker turns around, picks up the bag from the cook and hands it to me, sometimes after a couple minutes all while I'm standing there staring at it.
The workers at Sonic actually have to put some effort in, at least the good ones do anyway. If they get my order to me in a reasonable amount of time I'll always tip them $1. I knew several Sonic workers when I was in high school and they make pretty good money, but every one of them said that it's NOT an easy job and usually not worth the money except on a busy Saturday when you might actually walk out with $50+ in tips.
TheMeliorist said: tripleB said: I feel that Sonic has a lot of room to grow in the US due to the uniqueness of their food. Since this is the central point of your post, please explain it. Perhaps it's obvious to those who have been there, but I drive by a few every day, and always figured it was yet another place to buy hamburgers and hotdogs.It's clear from the OPs post that this is the place stoners drive two hours to get to late at night for the munchies. Ever see Harold and Kumar go to Whitecastle? With the inevitable legalization of pot, Soncic's business will explode.
We seriously need a legalization subforum for discussion the potential investment opportunities!
slomo007 said: ratdaddy said: slomo007, Don't tip your Sonic server. They're not doing anything special. They don't get your food out any quicker or make it taste any better. It's not your fault they have to bring it to you outside. Would you tip a worker at McDonalds or Wendy's?
The McD's or Wendy's worker turns around, picks up the bag from the cook and hands it to me, sometimes after a couple minutes all while I'm standing there staring at it.
The workers at Sonic actually have to put some effort in, at least the good ones do anyway. If they get my order to me in a reasonable amount of time I'll always tip them $1. I knew several Sonic workers when I was in high school and they make pretty good money, but every one of them said that it's NOT an easy job and usually not worth the money except on a busy Saturday when you might actually walk out with $50+ in tips.
Not an easy job, huh? What's the hard part? Is it the 30 ft walk to your car, or the 30 ft walk back inside? Oh no, I know what it is- it's counting your change with those little belt change dispensers. Give me a break.
Sonic is a regional fast food. You only list the big players, but as sonic enters new markets, they will have to compete with other regionals. Do you really think a sonic burger and an In&Out burger can compare? No way I'm going to sonic if in&out is next door. Same with whitecastle, why get a sonic burger when I get a bunch of tasty sliders.
Besides, Sonic generally only "works" in the midwest, where all the fatties don't want to get out of their cars.
kharvel
Senior Member - 3K
posted: Oct. 21, 2009 @ 5:30p
This stock reminds me of Krispy Kreme. Huge hype in the beginning and then a downfall.
Burgers and fries are easy substitutes in a free market economy. Unless Sonic has the best burgers and fries in the world, I doubt it will do any better or worse than a Mickey D's or a BK.
The tortilla is ~300 calories, but an actual burrito with the works will often run you 1000+ calories - and that's before double meat. Still won't keep me from dressing up like a burrito this Halloween to nab a free one, but it does put a damper on some people's enthusiasm, especially after they get the sell that "all-natural ingredients means it's good for you."
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